Property Management – From
Purchasing to Disposition!
Tiffany R. Winters, Esq.
twinters@bruman.com
Brustein & Manasevit, PLLC
www.bruman.com
Spring Forum 2013
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What Rules Apply??

State educational agencies (SEAs) and local
educational agencies/school districts (LEAs):
◦ EDGAR Part 80
◦ OMB Circular A-102 (Sections __.30- __.36)

Institutions of Higher Education (IHEs) and
Nonprofit Organizations
◦ EDGAR Part 74
◦ OMB Circular A-110 (2 C.F.R. 215.30 – 215.48)
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What is Equipment?

Equipment: tangible, nonexpendable,
personal property having a useful life of
more than one year and an acquisition
cost of $5,000 or more per unit
Grantees may lower the threshold
34 C.F.R. 74.2
34 C.F.R. 80.3

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What about everything else?


Technically – everything else are “supplies”
Supplies means
◦ Personal property, excluding equipment
◦ 34 C.F.R. 74.2; 34 C.F.R. 80.3
34 C.F.R. 74.2 adds…
 Intangible property
 Debt instruments
 Inventions of a contractor conceived or first actually
reduced to practice in the performance of work under a
funding agreement
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Other Technological Items?

Prior audits applied equipment rules to
other items
◦ Found setting threshold of $500 was too high
 Significant Technological Items
 Easily Pilferable Items
 Highly Walkables

New OMB Notice
◦ Introduces New Category of “Computing
Devices”
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OMB: Computing Devices Are
Allowable Direct Cost Supplies
Explicitly includes the cost of computing
devices as allowable direct cost supplies
 Documented in separate line item
 Not required to conduct more stringent
inventory controls in place for equipment!

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Would new OMB requirements
actually change equipment
thresholds set by auditors?
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PURCHASING
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Purchasing Equipment:
Procurement Standards
IHEs and Nonprofits:
 Must follow policies and procedures that
meet the standards set out in 34 C.F.R.
74.41 through 74.48.
 Rules are designed to ensure materials and
services are obtained in an effective and
compliant manner.
34 C.F.R. 74.40
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Purchasing Equipment:
Procurement Standards
SEAs:
 States may use their own procurement
policies and procedures to procure
equipment. 34 C.F.R. 80.36
◦ Best Practice: Ensure that policies and procedures
meet all standards for other grantees and
subgrantees.
LEAs:
 Other grantees and subgrantees must follow
policies and procedures that meet the
standards set out in 80.36(b)-(i).
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Ownership

Generally, title to equipment purchased
with Federal funds vests in the
organization that made the purchase.
34 C.F.R. 80.32(a)
34 C.F.R. 74.34(a)
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Ensuring Purchases are Necessary

All costs have to be necessary for the
performance or administration of the Federal
grant
34 C.F.R. 80.22/ 34 C.F.R. 74.27
(OMB Circulars A-87/A-21/A-122)

Must review all proposed purchases to avoid
unnecessary or duplicative items
34 C.F.R. 80.36(b)(4-7)
34 C.F.R. 74.44(a)
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Open Competition
SEAs and LEAs
 All procurement transactions will be conducted in
a manner providing full and open competition
34 C.F.R. 80.36
IHEs and Nonprofits
 All procurement transactions shall be conducted in
a manner to provide, to the maximum extent
practical, open and free competition
34 C.F.R. 74.43
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Open Competition
SEAs and LEAs
 Situations that restrict competition:
◦ Unreasonable requirements on vendors to qualify to do
business
◦
◦
◦
◦
◦
◦
 Pre-qualified lists should not limit competition
Requiring unnecessary experience or excessive bonding
Noncompetitive pricing practices
Noncompetitive awards to consultants on retainer
Organizational conflicts of interest
Specifying a brand name
In-state or local preferences
34 C.F.R. 80.36(c)
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Open Competition
IHEs and Nonprofits
 Be alert to organizational conflicts of
interest and noncompetitive practices
that may restrict or eliminate competition
or restrain trade
34 C.F.R. 74.43
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Conflict of Interest

Must have written policies and procedures
regarding conflict of interest.

A conflict of interest arises when any of the
following has a financial or other interest in the
firm selected for award:
◦
◦
◦
◦
Employee, officer or agent
Any member of that person’s immediate family
That person’s partner
An organization which employs, or is about to employ,
any of the above or has a financial interest in the firm
selected for award.
34 C.F.R. 80.36(b)(3)
34 C.F.R. 74.42
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Conflict of Interest
IHEs and Nonprofits
 Officers, employees, agents of the recipient
shall neither:
◦ Solicit nor accept gratuities, favors, or anything of
monetary value from contractors or parties to
subagreements.
◦ However, recipients may set standards for
situations in which the financial interest is not
substantial or gift is an unsolicited nominal value.
 Standards must include disciplinary actions for violations.
34 C.F.R. 74.42
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Role of Cost/Price Analysis
Method and degree of cost or price
analysis depends on the particular facts
and circumstances
 Must make independent estimate before
receiving bids or proposals

34 C.F.R. 80.36(f)
34 C.F.R. 74.45
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Vendor Selection Process
Must have written selection procedures
 Procedures must ensure all solicitations:

◦ Include a clear and accurate description of
technical requirements
◦ Identify all requirements vendor must fulfill
◦ Identify evaluation factors
34 C.F.R. 80.36(c)
34 C.F.R. 74.44
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Types of Procurement
SEAs and LEAs
 Methods of procurement:
◦
◦
◦
◦
Small purchase procedures
Competitive sealed bids
Competitive proposals
Noncompetitive proposals
34 C.F.R. 80.36(d)
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Vendor Selection Process:
Small Purchase Procedures

Good or service that costs $100,000 or
less
◦ State or local government may set lower
threshold
Must obtain price or rate quotes from an
adequate number of qualified sources
 “Relatively simply and informal”
34 C.F.R. 80.36(d)(1)

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Vendor Selection Process:
Noncompetitive Proposals
Under 34 C.F.R. 80.36(d)(4): Appropriate
only when:
◦ The good or service is available only from a
single source (sole source)
◦ There is a public emergency
◦ The awarding agency authorizes
◦ After soliciting a number of sources,
competition is deemed inadequate
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Types of Procurement
IHEs and Nonprofits
Recipients shall make procurement documents
available upon request when any of the following
conditions apply:
 A procurement is expected to exceed the small
purchase threshold, fixed at $100,000.
◦ Note: While EDGAR states the amount is set at $25,000
41 U.S.C. 403(11) was updated and increased.
The procurement specifies a brand name;
The proposed award is to be awarded to other
than the apparent low bidder under a sealed bid;
etc.
34 C.F.R. 74.44(e)

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Brand Name Requirements
SEAs and LEAs
 States Brand Names restrict competition
◦ Must state “brand name or equal”
34 C.F.R. 80.36(c)
IHEs and Nonprofits
 The specific features of a brand name or
equal descriptions that bidders are required
to meet must be included in the solicitation
34 C.F.R. 74.44(a)
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Noncompetitive Procurement

Standard more relaxed for IHEs and
Nonprofits:
◦ Must maintain justification for lack of
competition when competitive bids or offers
are not obtained and it exceeds the small
purchase threshold
34 C.F.R. 74.44(e)
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Vendor Selection Process:
Noncompetitive Proposal

As a practical matter, a
noncompetitive contract
raises “red flags”
◦ Ensure persuasive and
adequate documentation to
facilitate audit
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Vendor Selection Process

Can only contract with responsible
contractors possessing the ability to
perform successfully:
◦
◦
◦
◦
Contractor integrity
Compliance with public policy
Record of past performance
Financial and technical resources
34 C.F.R. 80.36(b)(8)
34 C.F.R. 74.44(d)
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Vendor Selection Process

Cannot contract with vendor who has
been suspended or debarred
◦ http://www.epls.gov/
◦ www.sam.gov
34 C.F.R. 80.35
34 C.F.R. 74.44(d)
34 C.F.R. 85.530
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Procurement Documentation
SEAs and LEAs: Retain records to
document:
◦ Rationale for the method of procurement
◦ Selection of contract type
◦ Contractor selection or rejection
◦ Basis for contract price
34 C.F.R. 80.36(b)(9)

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Procurement Documentation
(cont.)

IHEs and Nonprofits: Retain records to
document:
◦ Basis for contract selection
◦ Justification for lack of competition (if
applicable)
◦ Basis for award cost or price
34 C.F.R. 74.46
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YOU FINALLY
PURCHASED THE ITEM,
NOW WHAT?
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Contract Administration

Must maintain a contract
administration system that
ensures contractors perform in
accordance with the terms,
conditions, and specifications of
the contract
Clearly stated in Part 74
 Implied in Part 80

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Contract Administration
IHEs and Nonprofits
 A system for contract administration
must be maintained to ensure contractor
conformance with terms of contract
 To ensure adequate and timely follow up
of all purchases
 Must document whether contractors
have met the terms of their contracts!
34 C.F.R. 74.47
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Contract Provisions

All contracts supported with Federal funds must
contain certain required provisions
◦ Specifics vary slightly
34 C.F.R. 80.36(i)
34 C.F.R. 74.48
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Contract Administration

As a practical matter:
◦ Must have written contracts (purchase order ok)
◦ Contract should include clearly defined deliverables




Description of services to be performed or goods to be delivered
Dates of performance
Location of services or delivery
Description of number of students/teachers/etc. to be served (if
applicable)
◦ Invoice must match the purchase order
◦ Both must be reviewed and approved before
payment!!!
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INVENTORY
MANAGEMENT
Must have adequate controls in place to
account for:
• Location of equipment
• Custody of equipment
• Security of equipment
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Inventory Management

Equipment property records
◦ Description, serial number or other ID, title info,
acquisition date, cost, percent of Federal
participation, location, use and condition, and
ultimate disposition

Physical inventory
◦ At least every two years
34 C.F.R. 80.32
34 C.F.R. 74.34
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Inventory Management (cont.)

Must protect against unauthorized use
◦ May use for other projects as long as use is
incidental and does not interfere

Control system must be in place to
prevent loss, damage, theft
◦ All incidents must be investigated
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HOW CAN I USE MY
INVENTORY?
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Use of Grant-Acquired Equipment
SEAs and LEAs
May be used for the grant program that purchased the
equipment:
◦ As long as needed; and
◦ Even if no longer funded with Federal funds
 When no longer needed, may be used in other activities
currently or previously supported by a Federal agency.
 Preference given to ED programs.
 May be used on other projects/programs currently or
previously funded by the Federal government, but watch
allocability!
34 C.F.R. 80.32(c)

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Use of Grant-Acquired Equipment
IHEs and Nonprofits
 May be used for the grant program that purchased the
equipment:
◦ As long as needed; and
◦ Even if no longer funded with Federal funds
 When no longer needed, may be used in other Federally
funded activities, but must be prioritized to:
 Preference given to ED programs (if initial grantee); then
 Other Federal agency programs
34 C.F.R. 74.34(c)
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DISPOSING OF
INVENTORY
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Equipment Disposition

When equipment no longer needed, must
follow disposition rules:
◦ Transfer to another Federal program
◦ Over $5,000 – pay Federal share
◦ Under $5,000 – no accountability
34 C.F.R. 80.32(e); 34 C.F.R. 74.34(g)
IHEs and Nonprofits
 Disposition rules requested from the
Secretary (i.e., granting agency)
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Disposition of Supplies
If there is residual inventory of unused
supplies exceeding $5,000 in total
aggregate fair market value upon
termination or completion of the award;
and
 Supplies are not needed for any other
Federal grant; then
 Must compensate ED for its share!
34 C.F.R. 80.33
34 C.F.R. 74.35

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Sale of Property

Proper sales procedures shall be
used that provide for
competition to the extent
practicable and result in the
highest possible return
A-133 Compliance Supplement
Part 3 (3-F-1)
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STILL HAVE TROUBLE
WITH PROPERTY
MANAGEMENT RULES?
REVIEW YOUR INTERNAL
CONTROLS!
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Components of Internal Controls
Control
Environment
Risk
Assessment
Control
Activities
Information
and
Communication.
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Monitoring
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Control Environment Examples
Management committed to providing
proper stewardship for property acquired
with Federal awards.
 No incentives exist to under-value assets
at time of disposition.
 Sufficient accountability exists to
discourage temptation of misuse of
Federal assets.

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Risk Assessment Examples


Procedures to identify risk of
misappropriation or improper disposition of
property acquired with Federal awards.
Management understands requirements and
operations sufficiently to identify potential
areas of noncompliance.
◦ Decentralized locations,
◦ Departments with budget constraints,
◦ Transfers of assets between departments, etc.
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Control Activity Examples
Accurate records maintained on all acquisitions and
dispositions of property acquired with Federal awards.
 Property tags are placed on equipment.
 A physical inventory of equipment is periodically taken
and compared to property records.
 Property records contain all required information.
 Procedures established to ensure that the Federal
awarding agency is appropriately reimbursed for
dispositions of property acquired with Federal awards.
 Policies and procedures in place for responsibilities of
recordkeeping and authorities for disposition.

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Information and Communications
Accounting system provides for separate
identification of property acquired wholly
or partly with Federal funds and with
non-Federal funds.
 A channel of communication exists for
people to report suspected improprieties
in the use or disposition of equipment.
 Program managers are provided with
applicable requirements and guidelines.

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Monitoring
Management reviews the results of
periodic inventories and follows up on
inventory discrepancies.
 Management reviews dispositions of
property to ensure appropriate valuation
and reimbursement to Federal awarding
agencies.

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Testing Internal Controls
Example: Property Management
Document an understanding of policies,
procedures and internal controls in place
regarding property management
◦ Use checklists, flowcharts, narratives or
questionnaires to determine the current
internal controls
2. Select sample transactions and determine if the
sample correctly flows through the system
3. Note any deviations
1.
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Testing Internal Controls (cont.)
Program and Finance
Office Approve
Requisition.
Create Purchase
Order and Process
Order.
Verify Delivered
Goods Are What was
Ordered. Sign
Invoice.
Goods Placed at
Location For Use
Accounts Payable
Verifies Invoice and
Requisition. Vendor
Paid.
Required Goods are
Inventoried Into the
System
Full Inventory
Conducted at End of
School Year.
Send Invoice to
Accounts Payable.
Inventory List
Updated. Missing
Items Investigated.
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Testing Internal Controls (cont.)
Discuss the results of the
walkthrough with management and
inform them of any deficiencies that
need immediate attention
 Document any changes to risk
assessment
 Document findings

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Weak Internal Controls – What Now?

When internal controls weaknesses are
determined – various options:
1. Increase supervision and monitoring
2. Institute additional or compensating controls
3. Accept risk inherent with the control
weakness (assuming management is aware of
the weakness)
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Disclaimer
This presentation is intended solely to provide
general information and does not constitute
legal advice. Attendance at the presentation
or later review of these printed materials does
not create an attorney-client relationship with
Brustein & Manasevit, PLLC. You should not
take any action based upon any information in
this presentation without first consulting legal
counsel familiar with your particular
circumstances.
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